Broker: Maybank Research Pte Ltd
Date of Report: June 18, 2025

Singtel’s Strategic Resilience: Navigating Optus Penalty, Growth Catalysts, and ESG Leadership

Overview: Singtel’s Robust Performance Amid Regulatory Headwinds

Singapore Telecommunications Limited (Singtel), listed as ST SP, has demonstrated notable resilience in the face of regulatory challenges, specifically the recent AUD100 million penalty imposed on its Australian subsidiary, Optus. This comprehensive analysis explores the implications of the penalty, Singtel’s strong financial and operational metrics, growth catalysts, and its industry-leading ESG practices as outlined by Maybank Research Pte Ltd.

Optus Penalty: Financial and Commercial Impact

Nature of the Penalty

– Optus, Singtel’s Australian subsidiary, has settled with the Australian Competition and Consumer Commission (ACCC) regarding past unconscionable conduct and inappropriate sales practices from August 2019 to July 2023. – The settlement includes a proposed civil penalty of AUD100 million and an Enforceable Undertaking mandating comprehensive reforms in Optus’s retail and sales operations.

Financial Implications

– The AUD100 million penalty poses minimal risk to Singtel’s financials, as this amount has already been provisioned in Singtel’s FY25 accounts. – No surprise impact on earnings is expected. – The penalty will not disrupt Singtel’s dividend policy, its strategic FY26 capex guidance of SGD2.5 billion, or ongoing asset recycling initiatives. – The financial impact is one-off and fully accounted for.

Commercial Impact

– Minimal customer churn is anticipated. Previous regulatory issues have not significantly affected Optus’s subscriber base. – The misconduct period is historical, with any reputational damage likely already reflected in Optus’s market position. – Recent operational data: Optus added 238,000 mobile customers in FY25 and posted 5.7% YoY EBITDA growth despite regulatory scrutiny.

Investment Thesis: Growth Catalysts and Valuation

Key Catalysts for Growth

Maybank Research remains bullish on Singtel, highlighting three major growth catalysts: – Narrowing of the holding company (holdco) discount to 20-25% from the current 25-30%. – Accelerated ramp-up of data center businesses in Thailand and Singapore. – Further operational and financial improvements at Optus.

Valuation and Price Target

– Current share price: SGD 3.97. – 12-month price target: SGD 4.30 (+13% upside). – Singtel’s market capitalization: SGD 65.6 billion (USD 51.1 billion). – Major shareholders include Temasek Holdings (52.0%), Central Provident Fund (4.7%), and The Vanguard Group (1.6%).

Share Performance

– 52-week high/low: SGD 3.99 / SGD 2.60. – 3-month average turnover: USD 42.1 million. – Free float: 92.7%. – Outstanding shares: 16,515 million. – Absolute return: +4% (1M), +18% (3M), +54% (12M). – Relative return to Straits Times Index: +4% (1M), +17% (3M), +29% (12M).

Financial Overview: Consistent Growth and Solid Fundamentals

Key Financial Metrics (SGD Million)

Profitability and Leverage (Key Ratios)

• EBITDA margin: 25.5% (FY24A) rising to 28.6% (FY28E)
• Core net profit growth: 10.1% (FY24A), 9.3% (FY25A), 10.6% (FY26E), 17.7% (FY27E), 13.5% (FY28E)
• ROAE: 3.2% (FY24A), peaking to 16.5% (FY25A), sustaining above 12% through FY28E
• Net gearing: 14.6% (FY24A), climbing to 23.5% (FY28E)
• Free cash flow yield: 2.8% (FY24A), 8.0% (FY28E)

Valuation Breakdown: Sum-of-the-Parts Analysis

Regional Business Exposure and Investment Case

Telecommunications Conglomerate with Regional Reach

– Singtel is Singapore’s largest telecom operator and Australia’s second-largest via Optus. – Strong presence in India (Bharti Airtel), Indonesia (Telkomsel), Thailand (AIS, Gulf Development), and the Philippines (Globe), with additional exposure to NetLink NBN Trust and SingPost.

Operational and Financial Outlook

– Forecasted FY25-28 earnings CAGR: 14%, largely from associates. – Consolidated EBITDA projected to grow at a 3% CAGR over FY25-28, supported by moderate revenue growth and ongoing cost optimization. – Net debt/EBITDA (including associates) expected to remain below 2x in FY26-28, supporting dividend commitments.

Key Upside and Downside Risks

Upside Potential:

• Restructuring at Optus, leading to improved RoIC and FCF.
• Stronger-than-expected ARPU growth as pricing competition eases.
• Outperformance in cost-saving initiatives.

Downside Risks:

• Delays in Optus restructuring or further regulatory fines.
• Intensified price competition in core markets.
• Adverse FX movements impacting Optus and regional associates.

ESG Leadership: Transparent, Ambitious, and Impactful

ESG Ratings and Initiatives

– Overall ESG score: 85 (well above average). – Transparent disclosures and comprehensive ESG targets set Singtel apart from peers. – Board Sustainability Committee chaired by the CEO, with KPIs linked to business segments. – Net-zero target brought forward to 2045 (from 2050). – Scope 1 and 2 emissions reduced by 11.31% in FY23. – Four solar projects completed, generating 1,700MWh annually. – Full Scope 3 GHG emissions inventory developed for operations in Singapore and Australia.

Social and Governance Excellence

– 43% female board representation; independent directors chair all major committees. – 31% women in middle and top management; recognized by Bloomberg Gender Equality Index for five years. – SGD 57.9 million invested in workforce training (FY21-23), with an additional SGD 32.1 million pledged for FY24-25. – Zero fatality rate across Singtel and Optus in FY23. – No corruption cases reported in the last three years. – Strong focus on cybersecurity and personal data protection, despite minor lapses.

Quantitative ESG Highlights

Conclusion: Singtel’s Investment Case Remains Strong

Despite regulatory penalties at Optus, Singtel’s financial, operational, and ESG foundations remain robust, supporting continued growth and investor confidence. With clear catalysts, resilient earnings, and a leading regional presence, Singtel is well-positioned for further value creation in the evolving telecommunications landscape.

Historical Recommendations and Target Price Trends

– Consistently rated as “Buy” with target prices increasing from SGD 3.00 to SGD 4.30 over the past two years. – Return expectation: Above 10% in the next 12 months, including dividends.

Contact Information

For further insights and detailed analysis, contact Maybank Research Pte Ltd, Singapore.